More On Legal & Compliancefrom The Advisor's Professional Library
- Regulatory Oversight of Investment Advisors Although the regulatory environment is in a state of flux, it is imperative that RIAs adhere to their compliance obligations. To ensure compliance, RIAs and IARs must fully understand what those obligations are.
- Registration Requirements for Investment Advisor Representatives (IARs) When individuals launch an advisory firm, they must avoid marketing themselves or the firm as investment advisors before they are properly approved and registered. Otherwise, they are subject to severe penalties.
On Friday, Dr. Joseph "Chip" Skowron, former FrontPoint Partners hedge fund manager, got the bad news: he was sentenced to five years in prison for his part in an insider trading scheme in U.S. District Court in New York. He also was fined and ordered to pay restitution.
Reuters reported that in August Skowron had pleaded guilty to the charge of trading in 2008 on nonpublic information. He had admitted receiving information from a French doctor, Yves Benhamou, regarding the biotech company Human Genome Sciences Inc., for which Benhamou served as a consultant and whom Skowron had bribed for confidential results about clinical drug trials. In April Benhamou pleaded guilty to providing the information.
Manhattan federal court Judge Denise Cote had sharp words for the Yale-educated physician, according to a New York Times report. She was quoted saying, “Your criminal activities caused investors to lose money, undermined the integrity of the U.S. securities laws and caused many people to lose jobs.”
In imposing the sentence, the maximum allowable under the agreement reached between U.S. prosecutors and Skowron ’s attorney Jim Benjamin, she told Skowron, "You engaged in a pattern of deceit. You bribed and corrupted another physician." In addition to the five-year sentence, Cote ordered Skowron to forfeit $5 million, and added that he would have to pay millions more in restitution; the amount will be decided by June of 2013.
Skowron had managed several health-care funds previously. In addition to the insider trading charge, he also admitted giving false testimony under oath to the SEC. After the news of the insider trading charges hit, investor withdrawals from the hedge funds run by FrontPoint, which was formerly acquired and then spun off by Morgan Stanley, forced closure of the fund earlier in the year, as previously reported by AdvisorOne.com.
More repercussions will follow, with outstanding claims against the doctor still pending. Ironically, one is from Galleon Group, whose manager Raj Rajaratnam was also convicted for insider trading and who was hit with the longest sentence for such an offense in U.S. history.